Russia’s rouble spirals lower as central bank interventions top $3bn


Russia’s rouble still plunging

Russia's RobuleRussia’s rouble plunged again yesterday, and traders said the central bank intervened heavily to slow its slide, as oil prices dropped and Russian companies locked out of international capital markets drove demand for dollars.

The central bank says it has spent $3.3bn defending the rouble between last Friday and Wednesday, but the total amount over the past week is likely to be far larger since it releases its intervention data with a two-day lag.

Early yesterday the bank said it had shifted the rouble’s floating corridor on Thursday, the 12th 5-kopeck shift since last Friday, but the currency breached the new limits within the opening minutes of trading.

The rouble has been pressured for months by a plunge in prices for oil, one of Russia’s chief exports, as well as Western sanctions over the Ukraine crisis and dollar strength linked to speculation over a rate hike by the US Federal Reserve.

“The pressure on the rouble is unlikely to subside today. The market is being driven by demand for foreign currency, which is being unconvincingly countered by the central bank shifting the boundaries of its currency corridor,” Vladimir Evtisfeev, a financial analyst at Bank Zenit in Moscow, said in a note.

Sanctions over Ukraine mean dollars and euros are in short supply as major Russian firms are shut out of Western capital markets but still need foreign currency to service their overseas debts.

The rouble has lost 18% against the dollar this year, and the central bank has spent more than $40bn in interventions, the bulk of which came in March when the Ukraine crisis escalated.

The central bank said early yesterday it had shifted the boundaries of its floating rouble corridor 15 kopecks higher to 36.00-45 against a dollar-euro basket as of October 9 and had spent $1.5bn in interventions on Wednesday.

Russia’s rouble broke through those new boundaries straight after trading began, later hitting a low of 45.20 against the basket and was last trading at 45.19.

The central bank automatically intervenes to defend the rouble once it crosses the boundaries of its trading band and moves the band by 5 kopecks once it has spent $350mn in forex interventions, implying that the bank spent around $1bn in additional forex interventions on Thursday.

Traders said the central bank continued to intervene heavily in the currency market yesterday and had likely shifted its rouble corridor by another 20 kopecks.

By 0905 GMT, the rouble was 0.5% weaker against the dollar at 40.35 and lost 0.36% to trade at 51.11 versus the euro.

Weaker oil prices were a major drag on both the currency and stocks yesterday, with Russia’s two main share indexes down more than 1%. Futures for international crude benchmark Brent tumbled over $1 to below $89 a barrel yesterday, their weakest since 2010.

The dollar-denominated RTS share index was down 2.1% at 1,065 points, while its rouble-based peer MICEX was 1.4% lower at 1,364 points.

Russia’s top lender Sberbank was down 1.2%, while the country’s largest oil producer, Rosneft, fell 2.2%.

Gary Beal